Market failure will precede unlimited liability change

The government believes unlimited liability is anachronistic, according to John Parker, head of general insurance at the Association of British Insurers.

However, Parker said the government will only change the current laws demanding unlimited liability on third party bodily injury on motor insurance policies if the market fails.

He said: "The government can only make changes if a significant number of insurers have to withdraw or if there are huge price increases. Clearly, if you have unlimited expense on the balance sheet there is a question about what capital you need to put by."

Parker said the ABI is also building up evidence of the crisis in employers' liability insurance in order to present the government with a case for change. He said: "We don't have enough information about the costs and benefits of rehabilitation so we have commissioned Greenstreet Berman to research it. It is due to report back during the next couple of months."

He continued: "We have also commissioned Pricewaterhouse Coopers to look into the pros and cons of separating long-tail disease risks from short-term accidents. PwC is due to report back to us in autumn.

"We also want to find out how many companies are trading without EL cover and are considering a database of insurer records, similar to the Motor Insurance Bureau's database."

Parker warned brokers that they should present problems and solutions to the government if they want to see action. He said: "It's not just a case of raising issues, you have to put forward solutions. I think brokers need to be clearer about that."